Apparently, Britain will revert to the Imperial system of measurement as part of “new Brexit freedoms”. And, before you howl at a script more becoming of a Carry On comedy, the UK government is weighing in with a demand that TV broadcasters be required to produce “distinctively British” content. No, seriously. It would be gas, if things weren’t so serious. But now even gas is serious. Bizarrely, ahead of a critical COP26 Climate Change summit in Glasgow, there’s a shortage of CO2 gas in the UK and no amount of political hot air can deny Brexit culpability. Dire warnings from farmers, food producers and supermarkets of even more empty Brexit food shelves have forced the UK government to pay a US company to open up two fertilizer plants which had been shut due to the rocketing price of gas. CF Industries is now going to be paid the full operational cost of the factories which generate CO2 as a critical by-product used in the food industry. Crisis averted, carry on Global Britain? I’m not so sure and I do wonder will foreign bewilderment turn to something far more financially calamitous for GB. Let’s weigh up the following developments:

• Trade: The Biden administration in the US has pushed back on any bilateral trade agreement with Boris Johnson’s government. Note that the freedom to pursue a solo deal – ‘sovrinty innit’ - with the US was a significant post-Brexit promise to compensate for potential EU trade losses. Even that EU trade risk was downplayed as a “they need us more than we need them” calculation. So, how’s that measuring up? Awkwardly, the EU just announced its trade figures for the first 8 months of 2021. The EU’s trade surplus with the UK has jumped by €26 billion to €82 billion thanks to a €16 billion collapse in imports from the UK. To add insult to Brexit injury, the EU has also managed to increase its exports to the UK by €10 billion. Ouch, those pesky little facts suggest Global Britain needs the EU a bit more than previously thought.

 

• Taxation: The Conservative government has introduced a hike in National Insurance taxes for both employees and employers. This leaves taxation levels in the UK at their highest since World War II and obviously kills off the promise of the UK as a “Singapore of Europe”. At the same time, tightening government purse strings have removed the £20 per week Universal Credit support. Rising food and energy prices(up 250% this year) have a 1979 Winter of Discontent feel about them but Boris Johnson has assured citizens that price spikes are “a short term problem”. That might sound less reassuring when one considers the long-term planning of this government….

 

• Energy: Globally energy/gas prices are rising but the UK is acutely exposed due to some very short-term thinking. Firstly, gas storage facilities are in woefully short supply in the UK which means current market price volatility immediately hits UK energy providers who have failed to hedge for such scenarios. Second, the grand Brexit plan pulled the UK from the EU Internal Energy Market(IEM). The IEM has ensured much lower energy prices for EU nations which, again, is a pesky fact contradicting another Global Britain promise.

That’s just the bigger financial items but the misery list keeps growing. Truck driver shortages, farming and food woes, fishing carnage, Northern Ireland tensions, untreated waste water, increased mobile roaming charges and a chaotic Afghanistan exit are hardly “feel good” factors for the natives of Boris-stan but in some ways domestic views are irrelevant. The views of foreign providers of financial capital are possibly far more significant. In one financial area, the news is pretty positive. UK companies thanks to valuation discounts and currency weakness on the back of Brexit have created a “UK for sale” buy-out frenzy. This week’s headlines about a potential bid for Ladbrokes(Entain) from US fantasy sports giant, DraftKings, is classic M&A activity with a corporate strategic motive but check out the enormous wave of private equity buy-out activity in the UK. The returns on offer are too good to ignore for the financial Barbarians at the City Gate, unmoved by Priti Patel’s armoured jet-skis patrolling the Channel. The first 6 months of 2021 witnessed 38 UK buyouts worth $45 billion according to financial data group, Refinitiv. That’s double any previous record for a half year period and could see the likes of Morrisons, G4S, John Laing Group and Aggreko snapped up by foreign funds. Clearly, foreign money sees a future for UK corporates. However, there is a larger pool of foreign financial capital which needs to be watched. Let’s go back to the big financial items listed earlier. Expanding trade deficits and dramatic rises in energy costs make it more difficult for the Chancellor, Rishi Sunak, to balance the government’s books. Hence, the tax increases. However, public sector net debt stood at £2.2 trillion in August and the government is spending £20 billion more than its income…..every month. Borrowing other people’s money at an annual rate of circa £250 billion requires a degree of confidence in the competency of government. Things like planning, credibility and sticking to international commitments are typically considered important. It is early days yet and debt servicing costs are at historic lows but one can’t help thinking of Hemingway’s line about bankruptcy happening “gradually, then suddenly”. Now think about a Winter of Discontent with rising food and energy prices, struggling exports, labour strikes and comical political dysfunction. Credit is all about confidence and the maintenance of same with one’s lenders, particularly those foreign lenders who look at data rather than Daily Telegraph or Daily Mail editorial fantasies. An increasingly isolated Global Britain will still be depending on the kindness of strangers for funding of at least £20 billion per month, and that figure will rise rapidly if the economy stalls. The big danger is that, if the sovereign bond markets demand better terms (higher rates) to compensate for higher risks and deteriorating credit quality, then the economic cost of Brexit will have its very own catastrophe measurement category. Imperial stuff.